While major tea producing countries have seen an increase in prices, those in India have fallen by around 3.5 per cent during the first seven months of the current year.
Sri Lankan prices were an average of $4.03/kg, against $2.95 a kg in the same months of 2016. Kenya’s have been $3 a kg, vis-vis $2.3/kg a year before. Average Indian auction prices have seen a year-on-year fall of three per cent, varying considerably across quality grades. The average price is around Rs 128 a kg, from Rs 131.5 a kg last year and Rs 115 a kg in 2015.
Kaushik Das, vice-president at ratings agency ICRA, the softer trend is in medium to lower quality grades, with quality teas selling at a considerable premium compared to last year.
Reduced global is likely to result in a continued upward price trajectory across most international auction centres. These would support a similar trend here and an increase in realisations is expected over the near term. This would be favourable for bulk tea players in 2017-2018, despite cost pressures, mainly attributable to rising wage rates, said Das.
India and Sri Lanka have recovered in recent months from earlier crop losses. However, a loss of 49 million kg in Kenya during the year’s first quarter is unlikely to be made up in the latter half, despite some recovery in May-July. For the full year, Kenyan production is expected to be seven per cent lower than a year before. This would push global tea production for 2017 lower than in 2016.
While aggregate Indian export volumes were up during these seven months, all-India export realisations were largely unchanged. This was on account of a sale of teas carried over from the previous season, unavailability of Darjeeling teas due to regional agitation and the rupee's rise against the dollar, said Das. However, he expects export realisations to improve, with high demand for Indian tea. This is expected to provide support to domestic price trends.
After a considerable decline in financial performance from 2014-15, profit margins and debt coverage indicators for bulk tea players are likely to see some improvement in 2017-18, with the expected increase in prices, especially for those in higher quality segments. Also, increased production, with input tax credit available under the new goods and services tax.